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There's Nothing New Under the Sun

Since every aspect of fleet management revolves around money, reducing fleet costs is a constant, never-ending struggle for all fleet managers. The pressure to save money year-over-year is persistent for all companies, but extremely difficult to achieve, especially in an environment of rising costs. For instance, vehicle acquisition costs have increased (and will increase further in the future) to meet increasingly stringent government-mandated safety and fuel-efficiency standards. In addition, the amount of technology contented in new vehicles increases each model-year. While new onboard technologies improves engine performance, fuel economy, driver comfort, and increases productivity, they incrementally add to overall vehicle acquisition costs and subsequent maintenance expenses.

Tires are the second-highest operating expense for fleets and prices will continue to remain elevated for the balance of 2012 and into 2013. The root cause of tire price increases is volatile commodity prices for the cost of rubber, steel, and oil. Similarly, higher commodity prices are impacting maintenance expenses by causing replacement component costs to increase, while inflation puts upward pressure on labor rates in many high-cost markets.

Today’s high resale values are helping mitigate depreciation expense, but they are an anomaly caused by the shortage of used vehicles in the wholesale market due to the extremely low sales of new vehicles during the 2008-2011 time frame. Nowadays, everyone is a hero when it comes to getting top dollar for their out-of-service fleet vehicles; however, these artificially high prices will ultimately decline as used-vehicle supply increases. Most remarketing analysts predict used-vehicle supply will begin to increase starting in CY-2013. As used-vehicle supply reaches equilibrium with buyer demand, resale values will soften.

Many fleet managers are given cost-reduction goals by management, based on a specific percentage reduction in fleet costs, and it is up to them to figure out how they are going to achieve the goals. This sometimes creates interdepartmental friction between fleet and other departments such as procurement, HR, and the sales/operational areas of the company.

The reality is that there is a limit to a fleet manager’s ability to reduce fleet equipment costs (and related operating expenses) due to fleet application requirements. One way to offset higher costs is to increase fleet productivity. However, implementing productivity strategies is difficult since fleet touches so many stakeholders within an organization who have varying and, sometimes, contradictory expectations. The best truism in fleet management is that the optimum time to control cost is before it occurs, and the way to do this is by establishing fleet policies and procedures that inhibit unnecessary spending by drivers and user departments.

Beyond our Control

Most expenses are beyond the control of fleet managers. Fuel is the highest operating expense facing commercial fleet managers, with price volatility creating tremendous challenges to planning, budgeting, and containing this variable cost. Market demand and consumption drive fuel prices, which is beyond the control of fleet managers. Most fleet managers are resigned to the fact that fuel prices will remain elevated and are reacting by acquiring more fuel-efficient vehicles by downsizing to four-cylinder engines. Other fuel-saving programs involve idle-reduction initiatives, modifying driver behavior, the use of telematics to monitor fuel consumption, and fleet-size reduction.

Another area impacted by cost constraints is sustainability. Despite a slow economy, sustainability initiatives continue to receive strong support from senior management at many companies, especially multinational corporations. Nonetheless, one of the biggest issues in fulfilling green fleet initiatives is constraints in capital spending budgets for fleet replacement. At most companies, before a green fleet initiative is implemented, a business case needs to be presented illustrating an acceptable return on investment (ROI).

Most major green fleet initiatives are difficult to adopt if they do not create a near-term payback or significant ROI, particularly in those organizations that do not have an inherent “green” culture.

There’s Nothing New under the Sun

Although these fleet challenges are daunting, as the proverb reminds us, “There is nothing new under the sun.” The cost-containment issues confronting today’s fleet managers are essentially no different than those confronting the fleet managers of yesteryear and will most likely be the same issues confronting the fleet managers of tomorrow. Borrowing from another proverb, “The more things change, the more they seem to stay the same.”

Market Trends

The recent U.S tax law changes created a problem for employers who use a non-accountable vehicle reimbursement plan. Negative feedback has some companies reconsidering the viability of offering company-provided vehicles to help key employees mitigate the adverse impact of eliminated tax deduction.

A truck’s total cost of ownership (TCO) covers a specific range of expense variables, regardless of the make or model. The four lifecycle categories that influence TCO are fixed costs, operating expenses, incidental costs, and depreciation/resale value. A key factor that drives these lifecycle categories is a vehicle’s service life.

Most in procurement take the position that fleet’s primary responsibility is to buy assets and services, which annually can range from millions to tens of millions of dollars in expenditures. This amount of corporate spend requires it be managed by someone with superb negotiation skills and proven procurement acumen.

If you want to provide added value to your company, you need to view fleet as a business and not simply an aggregation of assets to be managed cost-effectively. The fastest way to improve your bottom line is to increase fleet utilization, which increases the productivity of each individual truck.

Blog: Vocational trucks are susceptible to being targeted for staged accidents, which involves maneuvering an unsuspecting employee driver into an intentional crash in order to make a false insurance claim or to file a lawsuit against the driver’s employer.

If you think being a fleet manager is stressful, try being a Navy SEAL. Former Navy SEAL Robert O'Neill, best known for claiming to have shot Osama bin Laden, recently wrote a new book entitled, “The Operator.”

Conventional wisdom in the fleet market is often wrong. If we roll back the calendar, the conventional wisdom about fuel prices was that there would be ebbs and flows in price per gallon rates, but the overall price trajectory would trend upward. The flaw with conventional wisdom is that it only works when no new variables are inserted into future projections. A case in point is the shale oil revolution, which now has experts predicting oil prices will remain flat for the foreseeable future.

Summer is a busy time in fleet. There’s an abundance of next-model-year OEM fleet meetings, new-model intros, and industry conferences, which offer ample opportunities to “talk fleet” with the movers and shakers of our industry. If you want to know what's happening in the fleet market, you need to talk with fleet managers -- lots of them.

Senior management exerts intense pressure on fleet managers to control and/or reduce vehicle acquisition and operating expenses. To accomplish this, a fleet managers can pursue three different cost-control strategies — cost savings, cost deferral, or cost avoidance. In order to implement a successful cost-control strategy you need to institutionalize the mechanisms to curb money-wasting behaviors.

To be successful on a sourcing team, you need to be open-minded about exploring all available service channels and partners. However, open-minded doesn’t mean being open-headed. You must listen and entertain new ideas, but also temper such a practice and attitude with pragmatism and knowledge.

In the long run, technology will exert inexorable downward pressure on overall fleet size and will eliminate altogether the need for some fleet vehicles. Despite this, fleet management will survive, albeit in a smaller capacity, and, most likely, in a completely different form than what we know today.